Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection, and Housing, to which was referred S.B. No. 1135 entitled:

begs leave to report as follows:

The purpose of this measure is to exempt credit card fees from the credit card usury cap and to clarify the definition of "interest" under the usury law.

The Hawaii Financial Services Association, Hawaii Bankers Association, and Hawaii Credit Card League testified in support of this measure.

Ninety per cent of Hawaii's credit card market is controlled by non-state-chartered financial institutions that are not subject to Hawaii's usury laws and which, therefore, operate at an advantage over Hawaii-chartered financial institutions. The latter are subject to state usury laws that limit the annual interest rate on credit cards to eighteen per cent. This limit applies to both the numeric periodic rate, which is the advertised rate, and any fee that is considered a finance charge under the federal Truth in Lending Act, such as a cash advance fee imposed for withdrawing funds on a credit card from an automated teller machine.

Your Committee finds that this measure helps to level the playing field by providing that the eighteen per cent annual interest rate limit on credit cards applies only to the numeric periodic rate and not to finance charges. Presently, most credit card fees are not considered to be finance charges and are already excluded from the usury limit; therefore, this proposed change does not represent a broad departure from current law. However, this measure will allow state-chartered financial institutions to compete more effectively against out-of-state banks that may assess cash advance and other fees against their customers to recoup their costs and cover their risks.

Additionally, this measure clarifies the types of fees that constitute "interest" under Hawaii usury law to facilitate out-of-state credit card lending by state-chartered financial institutions.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection, and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1135 and recommends that it pass Second Reading and be referred to the Committee on Judiciary and Hawaiian Affairs.